By Bryan Koh
The raging debate surrounding the potential replacement of the traditional commission-based model in insurance with a fee-only model remains a key concern for AIA Group, which believes this overhaul is unwarranted.
"I'm sorry to say that no one has done salary agents and proved that it is any cheaper than commission agents. If it is that easy and you can do salary agents cheaper, why aren't all companies doing it?" said AIA Group regional chief executive Ng Keng Hooi in an exclusive interview with BT.
This comes a week after Monetary Authority of Singapore (MAS) managing director Ravi Menon revealed plans to shake up the advisory landscape by reviewing the existing commission-based structure through the Financial Advisory Industry Review (Fair).
Under a fee-only model where agents and advisers are paid a salary, it has been suggested that agents may merely fulfil the bare minimum.
Conversely, Mr Ng added that commission-based remuneration promotes meritocracy, which acts as an incentive for agents who are paid only after they successfully complete a sale.
While the UK and Australia have already taken measures to ban commissions for financial advisers in a bid to ensure greater professionalism and transparency, it does not mean Singapore has to follow suit, said Mr Ng.
"We have to be careful not to look at the UK and Australia and say that is the best model and it is better than Singapore's. If you use salary agents, they can do very well or very poorly, and are still paid a fixed pay. I am not sure that it is much cheaper than on a commission basis."
Part of Mr Menon's proposed review also centred on relooking the multi-tier distribution structure, where supervisors stand to earn commissions on top of what agents earn. These commissions, embedded in insurance products, have been criticised for unnecessarily increasing the costs borne by customers.
Local cooperative insurer NTUC Income has already discarded the multi-tier system in an attempt to lower distribution costs and deliver greater value to customers, distinguishing itself from other insurers in the process.
But AIA Group is unlikely to follow in NTUC Income's footsteps, with Mr Ng commenting that this may not be a cheaper alternative and could inadvertently lead to reduced productivity.
"If paying managers on a salary basis is cheaper, most of the insurers would have gone there already. But you see - all over the world, and not just Singapore - no one has done it well," he said.
"Salary is a lot more complicated. Especially when the manager is older, productivity may go down. Ours is based on you delivering the sales and then you are rewarded accordingly."
Additionally, much has been made about insurance agents profiting more in commissions by hard-selling whole life insurance plans as premiums for those plans are higher than pure protection plans (or term insurance), which may not be in their customers' best interest.
"Simple term life insurance is sometimes all a person needs to protect against risk," said Mr Menon in his speech last week.
This issue has been oversimplified, said Mr Ng.
He said that customers have different preferences, with some opting for whole life insurance as they prefer a product with a savings element that offers a cash value, unlike term insurance that does not.
"You cannot tell them 'no, you should not have it'. The important thing is to make them see that there is (a term insurance product and a whole life insurance product) . . . and give them this option - which is what we have trained our agents to do."
Despite AIA's in-house estimations placing protection gap figures in Asia at US$20 trillion, there is still an underlying underinsurance problem plaguing the average Singaporean as the general sentiment has leaned towards investment products, said Mr Ng.
"Our belief is that it should be at least 5-10 times annual income," he added. "We did some studies and we found that only two out of 10 Singaporeans are adequately protected. Our challenge is that, sometimes, customers want returns and are not placing enough emphasis on the protection bit."
Consequently, AIA has embarked on its Premier Agency strategy to develop and train more agents to bridge this gap by encouraging clients to first address their protection needs wholly before selecting investment-type products.
On the topic of expansion, while Mr Ng reiterated AIA Group CEO Mark Tucker's intention to focus on organic growth, he declined to comment on reports surrounding AIA's rumoured interest to acquire ING Groep NV's Asian insurance unit in a deal valued at over US$6 billion.
However, he did not rule out the opportunity for potential M&A transactions if the right deal comes along. Said Mr Ng: "All I can say is if there is something that is financially sensible which gives returns to our shareholders . . . we would look at it."
Meanwhile, AIA Group's spate of hiring former Prudential staff for its management ranks has incited speculation that it is part of a deliberate strategy to poach its rival's top talents. Mr Ng, a former Prudential employee himself, was quick to dispel this allegation.
"In some places, it happens to be true because it so happens that Mark and I came from there and we do know some of these people," he said. "I can tell you a lot of people want to join us but they do not meet the standard, and they could be from Prudential. The main thing is that we are in a good position where we are able to attract people."
This article was first published in The Business Times.